MNI EUROPEAN MARKETS ANALYSIS: Hang Seng Firms On Stimulus Hopes

US TSYS: Early Move Fades, Marginally Richer As Risk Assets Firm

TYH3 deals at 113-02+, +0-14, jut off the top of its 0-08+ range, on volume of ~75K.

• Cash Tsys are marginally richer in today's Asia-Pac session, running 1-2bp firmer across the major benchmarks, with the 3- to 20-Year zone leading the strength.
• Tsys initially traded cheaper as local participants faded Tuesday's richening in early Asia-Pac dealing.
• A rally in the Hang Seng, aided by hopes of Chinese policy maker support for the economy, saw some demand for risk assets and promoted weakness for the USD, helping support the Tsy space, with TYH3 eying a test of Tuesday’s highs as a result.
  
• A block buyer of TUH3 headlined on the flow side (+3K), with some desks reporting light Tsy selling/swap payside interest around best levels, although those flows were limited.
• In Europe today we have final services & composite PMI releases. Further out we have JOLTS Job Openings and the ISM m'fing survey, although it will be the minutes from the Fed's December meeting that provide the highlight of the day.

JGBS: Curve Twist Steepens, Various Inputs Eyed

JGB futures bounced from the lows witnessed in the final overnight session of ’22 as Tokyo returned from the NY break, +25 on the day into the bell.

• Futures have drawn support from the bid observed in the global core FI space over the break, while cash JGB trade was a little more mixed.
• The major JGB benchmarks run 1bp richer to 5bp cheaper, pivoting around 10s.
• The early twist steepening of the curve became a little more pronounced after the BoJ outlined another round of unscheduled Rinban operations and 1- to 5-Year fixed rate purchases, with a reduction in the 10- to 25-Year purchases and lack 25+-Year purchases providing weight (upticks in the offer/cover ratios provided little impetus given the reductions in 1- to 3- & 5- to 25-Year purchase sizes).
• The previously outlined hawkish press speculation surrounding the BoJ (covering possible inflation forecast tweaks and the potential successor to Governor Kuroda) may have weighed on the longer end of the curve.
• Japanese MoF data covering the week ending 23 December revealed the largest ever round of net weekly sales of Japanese bonds on the part of foreign investors (Y4.8623tn), with the BoJ’s surprise tweak to its YCC settings facilitating those particular flows.
• Policymaker rhetoric failed to impact the space, with Kuroda once again pointing to the need for continued easing, while PM Kishida highlighted the need for real wage growth.
• Looking ahead 10-Year JGB supply headlines the domestic docket on Thursday.

JAPAN: Foreign Investors Sell Record Net Amount Of Japanese Bonds After YCC Tweak

Japanese MoF data covering the week ending 23 December revealed the largest ever round of net weekly sales of Japanese bonds on the part of foreign investors (Y4.8623tn), with the BoJ’s surprise tweak to its YCC settings facilitating those particular flows.

• Elsewhere, Japanese net sales of international bonds continued for a third straight week (and the eighth week in nine) but moderated a touch in net terms (Y459.5bn).
• Japanese net purchases of international stocks were registered for a fourth straight week, although net levels weren’t particularly standout (Y517.1bn).
• Finally, international investors were small net sellers of Japanese equities for a second consecutive week (Y265.1bn).

AUSSIE BONDS: Firmer & Flatter But Off Best Levels On Chinese Coal Import Chatter

Aussie bonds initially piggybacked the richening observed in global core FI markets in the wake of Tuesday’s local close, with a slight pullback in the RBA terminal rate pricing adding to the broader impulse.

• The space moved away from best levels late in the Sydney session on the back of a BBG source report which suggested that “Chinese bureaucrats are discussing plans to resume some imports of Australian coal after a more than two-year ban as relations between the nations improve.”
• That left YM +5.0 & XM +10.0 at the bell, after both contracts printed through their respective overnight peaks, before the aforementioned pullback.
• Wider cash ACGB trade sees the major benchmarks running 5.0-10.5bp richer across the curve, with a bull flattening theme observed all day.
• Bills finished flat to +8 through the reds, also bull flattening.
• RBA terminal cash rate pricing oscillated between 3.90-3.95% today.
• Looking ahead, final Judo Bank services & composite PMI data headlines the domestic docket on Thursday.

FOREX: DXY Gives Back Some Of Tuesday’s Rally

The USD struggled in Asia-Pac dealing, with a bid in the Hang Seng, linked largely to hopes surrounding Chinese policymaker support (from both a broad fiscal and property market-specific perspective) and slightly lower U.S. Tsy yields applying pressure.

• The greenback found itself at the foot of the G10 FX performance table as a result, while the JPY lost ground against all of its G10 FX peers, save the USD.
• The AUD was at the other end of the performance table, initially benefitting from its high beta status and links between the Australian economy and China, before it advanced further on the back of BBG source reports which suggested that “Chinese bureaucrats are discussing plans to resume some imports of Australian coal after a more than two-year ban as relations between the nations improve.”
• Elsewhere, USD/CNH traded back towards Tuesday’s multi-moth low, with the aforementioned hope re: deeper policy support for the economy, the USD/CNY mid-point fixing printing at the strongest level (in CNY terms) since mid-September (although that was broadly in line with estimates, providing a marginal 3 pip difference vs. the BBG survey) and seasonal onshore CNY demand ahead of the Lunar New Year break supporting the yuan.
• Looking ahead, the ISM Manufacturing survey and JOLTS job openings out of the U.S. are main data points scheduled ahead of the release of the meeting minutes covering the December FOMC.

FX OPTIONS: Expiries for Jan04 NY cut 1000ET (Source DTCC)

• USD/JPY: Y129.30($595mln), Y130.00($640mln), Y134.30($1.4bln)
• AUD/USD: $0.6800-05(A$1.2bln)

ASIA: Slower Orders And Deteriorating Optimism Point To Slower ASEAN Output

The S&P Global ASEAN manufacturing PMI in December printed at 50.3 down from 50.7 the previous month, the slowest rate of expansion for 15 months. The headline was supported by an improvement in operating conditions. New orders fell at a faster pace than the previous month, suggesting that output is likely to struggle in 2023 in line with the deterioration in confidence. Businesses cited the global growth outlook, inflation and spending cuts by their customers as their main concerns. On a better note, price pressures eased.

• Output price inflation rose at its lowest rate for 11-months but remained elevated, and input inflation was its lowest for 2 years. But supply chain issues continued across ASEAN due to difficulties with shipping and sourcing inputs.
• Manufacturing PMIs rose in Indonesia (50.9), Thailand (52.5) and the Philippines (53.1) but fell in Singapore, Malaysia (47.8), Vietnam (46.4) and Myanmar (42.1).
• Orders contracted in the region for the second consecutive month. As a result, job losses accelerated in December, especially as backlogs fell at their fastest rate in over two years.

EQUITIES: Gains In The Hang Seng Dominate

The Hang Seng stole the headlines in Wednesday’s Asia-Pac session, benefitting from hopes re: fiscal support for the Chinese economy in lieu of comments made by the Chinese Finance Minister, BBG source reports indicating that “Chinese authorities are planning to usher in further support measures to ease liquidity stress at some of the nation’s too-big-to-fail developers as the property downturn persists” and news that Ant Group’s consumer finance unit received approval to more than double its registered capital. Gains in the property sector and tech giant Alibaba (who own Ant Group) stood out in the wake of the news flow. The benchmark Hang Seng Index trades over 2.00% higher on the day at typing.

• Wider equity market performance was a little more mixed, with the Nikkei -1.5% as Tokyo returned from holiday and adjusted to moves in U.S. equity markets since the turn of the year, alongside a slightly stronger JPY in early ‘23.
• China’s CSI 300 is little changed as we move towards the bell, after dealing either side of unchanged.
• E-mini futures are 0.1-0.3% higher, with the NASDAQ 100 leading gains after tech giants Apple & Tesla traded heavily on Tuesday.

GOLD: Bullion Remains Close To Multi-Month Highs, Waiting For Key US Events

MNI (Australia) - Gold prices are higher again today up 0.4% after Tuesday’s 0.85% rise. It is now trading around $1846/oz, close to the mid-June highs, and down slightly on the intraday high of $1847.21 but well above the low of $1836.32. The USD has been trading sideways but UST yields are lower.

• On Tuesday bullion reached a high of $1849.98 while resistance stands at $1857.60, the June 16 high. Trend conditions for gold remain bullish. The current rally is being driven by expectations of the Fed becoming less hawkish, warnings of upcoming recessions and the spread of Covid through China.
• Later today the FOMC meeting minutes are published, as well as the December manufacturing ISM. Any signals of a less hawkish Fed should be good for gold prices. The other key event for the week is Friday’s payroll data for December, which is expected to post a 200k gain and average hourly earnings are forecast to ease only slightly to 5% y/y (bbg).

OIL: Crude Prices Fall Further On Lower Demand Expectations

MNI (Australia) - Oil prices have had a soft start to the New Year, as demand concerns come to the fore. Increased talk of recession plus the Covid situation in China have made markets more wary. Fears over the northern hemisphere winter have also been calmed with milder weather forecast.

• WTI crude has been trading in a narrow range and has fallen a further 0.4% today to $76.65/bbl breaching the key support of $76.79, the December 29 low, opening up $73.40. It reached an intraday high of $77.42 and a low of $76.56. Brent is down 0.2% to $81.90/bbl not far off its intraday low of $81.81 and just above its key short-term support of $81.85, the December 29 low.
• Oil production from OPEC rose slightly in November due to Nigeria reducing oil theft which had been reducing output for a long time. The other members complied with the quota cut. (bbg)
• Later today the FOMC meeting minutes are published, as well as the December manufacturing ISM. The other key event for the week is Friday’s payroll data for December, which is expected to post a 200k gain and average hourly earnings are forecast to ease only slightly to 5% y/y (bbg).